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Starbucks (SBUX) has a “grande” problem: It disappointed across the board in its second-quarter earnings report, sending its stock falling as it missed key revenue and earnings estimates.
Even Starbucks CEO Brian Niccol acknowledged late Tuesday that the results were “disappointing” on a post-earnings call. Starbucks announced earnings per share of $0.41 and $8.72 billion in revenue — but Wall Street analysts had expected those numbers to be $0.49 and $8.82 billion, respectively. Nicco said earnings per share “shouldn’t be used as a measure of our success” at this stage of the company’s “turnaround.”
Starbucks stock fell 7.5% in Wednesday morning trading. The shares are down almost 15% so far this year.
Most of note to investors was Starbucks’ comparable (or same-store) sales results, which fell for the fifth consecutive quarter and suggest that customers are seeking cheaper options, such as Dunkin’ and McDonald’s, or preferable environments elsewhere.
Global same-store sales fell 1% in the second quarter behind a 2% decline in transactions. Those numbers were even worse in the U.S., where those sales fell 2% fueled by a 4% drop in transactions. Wall Street had expected a more modest decline.
Niccol said the company “remained committed to China for the long term” — but slumping sales and high tariffs could change that strategy going forward. Meanwhile, Starbucks’ profit dropped more than 50% from the prior year.
“Our financial results don’t yet reflect our progress, but we have real momentum with our ‘Back to Starbucks’ plan,” Niccol said in a video posted on the company’s website. “We’re testing and learning at speed, and we’re seeing changes in our coffeehouses.”
The company’s “Back to Starbucks” plan includes updates to make stores feel more like a “third place” (comfier furniture, a no-loitering policy), a sequencing algorithm to get drinks in customers’ hands more efficiently and quickly; a dress code update; requiring patrons’ names to be handwritten on cups; mobile order scheduling; restoring the condiment bar; and a simplified menu.
Niccol said Starbucks would focus on improving front-end delivery rather than improving its kitchen equipment because “the equipment doesn’t solve the customer experience that we need to provide.”
He said on the company’s websitethat his “optimism has turned into confidence” that this plan will help the company turn business around. Niccol was brought on board late last summer to help the company change its course among faltering sales, much like he was able to do in his role as Chipotle’s (CMG) CEO.